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Petitioner's J Car Activity
If an activity is one "not engaged in for profit", section
183 limits the deductions allowed with respect to that activity.
First, section 183(b)(1) allows the full amount of those
deductions available without regard to the profit objective of
the activity. Then, section 183(b)(2) allows those deductions
normally permitted only if such activity were engaged in for
profit, but limits them to the amount by which the gross income
from that activity exceeds any deductions taken under section
183(b)(1). Section 183(c) defines an activity not engaged in for
profit as any activity other than one with respect to which
deductions are allowable under section 162 or section 212.
Whether deductions are allowable under section 162 or
section 212 depends upon whether the taxpayer engaged in that
activity with the "actual and honest objective of making a
profit." Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Dreicer
v. Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion
702 F.2d 1205 (D.C. Cir. 1983). The taxpayer's expectation of
profit need not be a reasonable one; however, the taxpayer must
have a bona fide objective to make a profit. Hulter v.
Commissioner, 91 T.C. 371, 393 (1988); Allen v. Commissioner, 72
T.C. 28, 33 (1979); Dunn v. Commissioner, 70 T.C. 715, 720
(1978), affd. without published opinion 607 F.2d 995 (2d Cir.
1979), affd. on another issue 615 F.2d 578 (2d Cir. 1980).
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Last modified: May 25, 2011